UK: The Effect of the Gambling Bill on the Law Governing Lotteries in Great Britain

The Gambling Bill, introduced to Parliament on 18 October 2004, governs the provision of all gambling in Great Britain, other than the National Lottery and spread betting, and would introduce a new regulatory and licensing regime. It aims to reform out of date gambling laws dating from the 1960s and consolidate all gambling laws under one Act. A revised regime for the law of lotteries is contained in the Bill, building upon that set out in the Lotteries and Amusements Act 1976, which the Bill would repeal.

Definitions in the Bill which are relevant to free prize draws would impact on those promotions in which the consumer will discover, immediately upon opening the product, whether or not they have won a prize (instant win promotions). For example, new definitions of 'payment' contained in the Bill may render an 'instant win promotion' a lottery, and thus subject to the conditions for lotteries, if payment is required to claim an instant win prize.

The general rule under the 1976 Act is that all lotteries are prohibited, with certain limited exceptions where exempt or registered in accordance with the Act. Those exceptions do not include lotteries which are for commercial purposes, and include small lotteries incidental to exempt entertainments, private lotteries and lotteries which form part of the National Lottery.

Lotteries are not defined in the Act but the courts have ruled that a lottery is a distribution of prizes by chance where the persons taking part, or a substantial number of them, make a payment or give consideration in return for obtaining their chance of a prize. A scheme will not be held to be a lottery unless the distribution of prizes depends wholly on chance. The introduction of an element of skill, no matter how small, will mean that the scheme falls outside the common law definition of a lottery and thus outside the general prohibition on lotteries.

1. Defining lotteries v prize competitions

The Bill would introduce a statutory definition of a lottery which reflects existing case law. It states that an arrangement is a lottery if people are required to pay in order to participate, if one or more prizes are allocated to one or more members of the class and the prizes are allocated by a process which relies wholly on chance. However, the definition introduces a two part concept of lotteries, that is, 'simple' and 'complex' arrangements. The only difference between the two concepts is that in a complex lottery prizes are allocated by a series of processes only the first of which must rely wholly on chance, whilst simple lotteries involve only one process and this must be wholly dependent on chance.

The reasoning behind this is unclear, especially since the government had previously expressed concern to distinguish between prize competitions and lotteries where, for example, a competition requires participants to answer one or more questions which most of the participants get right and where the names are then put into a draw to decide the winner. The view of the Department for Culture, Media and Sport ("DCMS") on this was that a court might consider this to be an illegal lottery. Under the Bill, it would seem that such a set up would not constitute a lottery even under the 'complex lottery' definition. Instead, the Bill targets prize competitions by setting a statutory skill level requirement for participation.

2. The skill requirement

The skill requirement is an attempt to restrict competitions which have previously succeeded in escaping the rules on lotteries, by introducing a nominal level of skill. For example, under the current regime if there is a lottery style arrangement with the additional 'hurdle' of an extremely easy question (the answer to which may even appear in the promotion itself), this would fall outside the scope of the prohibition on lotteries because it requires 'skill' on the part of the participant to answer it. The Bill attempts to close this loophole by requiring a higher level of skill from a participant. It does this by saying that even where skill and judgement are involved, these will be disregarded and treated as if the award of prizes is wholly dependent on chance (and thus illegal) if the task required does not prevent a significant proportion of persons who wish to participate from doing so nor prevent a significant amount of participants from receiving a prize. That is, the arrangement will be a lottery if the 'skill' requirement of an arrangement is not hard enough.

The difficulty with this clause is that what is meant by 'significant' is not clear and thus it may be difficult to apply in practice. In fact, even in the 1976 Act success in a prize competition had to 'depend to a substantial degree on the exercise of skill' for the competition to be lawful yet this provision did not seem to succeed in setting the bar high enough. Without the benefit of hindsight it will be problematic to assess and set the level of the skill requirement. Another potentially problematic scenario might be where a competition promises 100 prizes and expects thousands of participants. If it only receives 100 participants and awards all the prizes, technically it will fail the above mentioned provisions directed at restricting the proportion of participants who can win and will be regarded as wholly dependent on chance and thus potentially a lottery.

3. Rules on payment

Under the Gambling Bill payment includes paying money, transferring money's worth and paying for goods or services at a price or rate which reflects the opportunity to participate. As it is drafted, this list appears to be non-exhaustive and it would include the payment for an "instant win" promotional pack.

The statutory rules on payment do away with the rule in Minty v Sylvester 1915 which said that payment did not equal payment for the purpose of the laws governing lotteries if the participant didn't know that the payment gave them the right to the chance. Other points of note are that stamps, telephone calls at normal rate and other similar communications will not be regarded as payment. However a payment to discover whether a prize has been won under an arrangement shall be treated as a payment to participate in the arrangement, as will a payment in order to claim/take possession of a prize allocated to a participant. If there is a choice between free entry into the arrangement as an alternative to paying then the arrangement will not be treated as requiring participants to pay. This is a critical clarification of the existing regime, which should permit some current arrangements.

Whilst the current position on "free entry" would be clarified, prize competitions, prize draws or promotions which escape the risk of falling into the definition of lotteries on the basis that they are free to participate in, will no longer get through this payment loophole if, at a later stage, the participant is then required to make a payment such as a premium rate telephone call. If they are genuinely free to participate in, then they will not be classified as lotteries. Therefore, effectively, whilst the Bill has not legalised lotteries in sales promotions explicitly, it has said that lotteries operated via sales promotions where there is no payment to participate will not, as a general rule, be called lotteries.

4. Offences and exemptions

Essentially, whilst they have been reorganised, the lottery-related offences in the Gambling Bill cover the same ground as those in the 1976 Act, as do the limited exceptions to the prohibition on lotteries and the licensing requirements relating to society lotteries and local authority lotteries which replace the registration provisions of the 1976 Act. Sanctions for running an illegal lottery are criminal and can involve a fine or imprisonment.

The Bill has now moved from the House of Commons to the House of Lords where it is currently undergoing its Second Reading. It will undergo several further stages in the Lords before a new print will be made and sent back to the Commons for the Lords' amendments to be checked. If there are any remaining controversial elements the Bill may go back and forth between the Commons and Lords until these are agreed. Finally, the Commons have to agree to all the amendments before it goes back to the Lords for Royal Assent.

The Bill has now exceeded the timeline anticipated by the DCMS (who had hoped that it would receive Royal Assent by the end of 2004) and the House of Commons were unable to say whether there is a new deadline for the Bill.